Home loans keep getting costlier

After only a selective control for the housing section in the previous credit policy, the Reserve Bank of India has pulled a surprise by hiking the repo and reverse repo rate this week.

The requirement of increased provisioning by banks i.e. setting aside a portion of profits to cover possible defaults, for residential housing loans along with commercial real estate loans made them costlier.

"RBI has noted the rapid increase in loans to the real estate sector and as much to the housing loan industry. As we are aware there was a 84 per cent increase in credit offtake and this is what RBI wants to slow down until normalcy is reached", Pritam Chivukula, Head Agency, Colliers International had said soon after the credit policy.

The repo and rever repo rate hike have caused more panic this time around. Chairman of HDFC, Deepak Parekh, said in an interview to CNBC TV 18, that one should be prepared for another quarter percent hike in the next couple of months.

"So I don't think that we should really worry too much that all rates are going to go up next month. We have to see what the governor does in July, but I personally feel as I've said earlier that he was justified in doing this, seeing what's happening around the world", he said.

Chanda Kocchar, joint managing director of ICICI Bank said the bank would hike interest and lending rates by 50 bps each.

"What we are looking at is a last 3 - 4 month phenomenon. During the last quarter of the last year, January - March, interest rates have gone up.  Clearly we hadn't passed the entire increase because we had expected interest rates to come down after March. So it is not as if in the last one day the cost of funds have gone up, but going by the signal, one doesn't expect the cost to come down now, therefore one has taken this decision," she said in an interview to CNBC TV 18.

How the hike will affect you?

If you are a loan seeker or have a floating rate loan under Rs 20 lakh:

You are least likely to be affected. The rates should remain stable here as the increase in this segment has already taken place and the banks would be not be inclined to touch this bracket.

If you are a loan seeker or have a floating rate loan over Rs 20 lakh:

Bad news for you. The rates are moving up for this segment. With RBI first asking the banks to slow the credit offtake in this segment and then increasing interest rate, the high-end segment is going to be the first where the breaks will be applied.

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